New York workers reap big gains from minimum wage hikes in New York, while PA workers lag behind | Opinion

Posted Oct 05, 2019

By Stephen Herzenberg

The Federal Reserve Bank of New York is about as establishment as it gets, with tight connections to Wall Street and the financial services sector. That makes it particularly noteworthy that three Fed researchers last week reported large wage gains for New York “southern tier” low-wage workers from New York’s minimum wage increases, without job losses—while workers in neighboring Pennsylvania northern tier counties lag behind.

Representatives in Pennsylvania’s northern tier legislative districts should take notice. In fact, they should do more than that—they should commit themselves publicly to voting for a higher Pennsylvania minimum wage so that their rural constituents can enjoy the higher wages without job loss enjoyed by their New York neighbors.

The Federal Reserve Bank economists use a research method that has become a staple of minimum wage research since the 1990s. This method capitalizes on the “natural experiment” that results when one state increases its minimum wage (in this case, New York) and the state next door doesn’t (in this case, Pennsylvania). Since contiguous counties in neighboring states tend to have similar economies and unemployment rates, any divergence in the experiences of low-wage workers after a minimum wage increase can be plausibly interpreted as the result of the policy difference across the two places.

The Fed economists perform their “border analysis” on the rural border counties that are part of Pennsylvania’s northern tier and New York’s southern tier. They focus on two low-wage industries—leisure and hospitality and retail trade.

Since the end of 2013, New York has increased its overall minimum wage in these counties from the federal level of $7.25 per hour to $11.10 per hour. The New York minimum wage in fast food—part of the “leisure and hospitality” industry—is even higher: $12.75 per hour. Meanwhile, Pennsylvania’s minimum wage remains stuck at $7.25. What has been the impact of this sharp policy difference?

By the end of 2018, New York leisure and hospitality workers in the countries bordering Pennsylvania enjoyed a 25 percent wage increase (adjusted for inflation) over the previous five years. Their counterparts in Pennsylvania only received a 7 percent increase. Employment in leisure and hospitality has risen more in the New York border counties too, climbing 11% compared to only 5 percent in Pennsylvania border counties. So much for the idea that the minimum wage is a job killer.

In the retail sector, inflation-adjusted wages increased 12 percent in New York border counties from 2013 to 2019, but only 3 percent in neighboring Pennsylvania counties. Employment in retail fell by an identical amount in each state (6 percent), possibly because of the growth of online retail.

The findings of the Federal Reserve Bank researchers are completely consistent with Keystone Research Center’s own analysis of the food services industry using the same data base (see pp. 11-14 of this KRC minimum wage brief). The Fed researchers conclude that: “In gauging the effects of New York’s escalating minimum wage on two sizable low-wage industry sectors, one growing and the other shrinking, we find that it appears to have had a positive effect on average wages but no discernible effect on employment.”

One factor likely contributing to the faster growth of employment in leisure and hospitality in New York is that Pennsylvania border employers now find it hard to compete for workers. This can be a real headache for low-wage employers because high rates of turnover continually produce vacancies in low-wage industries. Meanwhile, vacancies likely fill more quickly in New York because of its higher wages, plus turnover will have fallen, creating fewer openings in the first place.

Because a Pennsylvania minimum wage increase would help attract and retain employees, low-wage businesses in Pennsylvania’s northern tier would benefit from the increase and be able to grow their businesses to meet higher customer demand.

The implication of the Fed research for Pennsylvania lawmakers is clear. They need to support an increase in the Pennsylvania minimum wage so that their constituents don’t have to go to New York any more to get a decent-paying job.

Stephen Herzenberg is the Executive Director of the Keystone Research Center.

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